HMRC error results in loss of inheritance tax otherwise owed

On 16 May 2011 Mrs Fleet set up a discretionary trust. The trustee was BTCL and the beneficiaries were her two sons (the executors in this appeal). At the same time HFL offered a term loan facility to BTCL of £1.4m and Mrs Fleet provided a guarantee of up to £1.4m. The next day BTCL drew down the £1.4m loan invested it in bonds which it distributed to the beneficiaries leaving the trust with no assets.

Mrs Fleet died on 24 May 2011. The executors submitted the IHT400 for the estate showing a deduction for the £1.4m guarantee reducing Mrs Fleet’s estate to below the nil rate band. The taxpayers applied for a certificate of discharge under IHTA 1984 s 239(2) populating only the death transfer sections of the form IHT30. They did not complete the section on lifetime transfers. HMRC issued...